BGR cautions against increasing homestead exemption

Times-Picayune archiveUnder a little-known provision in the state Constitution, the state is supposed to reimburse parishes, cities and other local agencies for the money lost because of the homestead exemption.

As the Legislature considers proposals to increase the homestead exemption, it should keep in mind that the exemption already costs local governments hundreds of millions of dollars a year in lost property tax revenue, a governmental watchdog group said Tuesday.

Under a little-known provision in the state Constitution, the state is supposed to reimburse parishes, cities and other local agencies for the money lost because of the exemption, but in 2009 the state provided only $90 million for that purpose -- just 12.5 percent of the $716 million lost statewide because of the exemption, the Bureau of Governmental Research said in a report.

Locally, it said, the state paid Jefferson Parish 12 percent of the $73 million it lost in 2009 because of the exemption, which makes the first $75,000 of the value of owner-occupied homes exempt from most property taxes.

Orleans Parish received 11 percent of the $55 million in tax revenue it lost, and St. Tammany Parish did even worse, getting back just 7 percent of the $73 million it lost, the research group said.

This was not always the case, the BGR report said. The $90 million annual reimbursement mandated in the 1974 state Constitution originally was adequate to offset the revenue losses incurred by local governments because of the exemption, it said. "But over time, with increases in the homestead exemption, the parity between the appropriation and the lost revenues has eroded significantly," the report said.

Sen. John Alario, D-Westwego, has proposed a constitutional amendment to double the exemption from $75,000 to $150,000 per house, plus annual adjustments thereafter to keep pace with inflation. That measure, which contains no provision to increase the amount directed to local governments, has been stuck in a Senate committee since the start of the legislative session.

However, the House has unanimously passed an amendment proposed by Rep. Rogers Pope, R-Denham Springs, to exempt the first $150,000 of the value of a home owned by a totally disabled veteran from property taxes. A Senate committee approved it Monday, and if passes the full Senate by a two-thirds vote, it will be submitted to voters on Nov. 2. If voters approve it, it will cost local governments between $900,000 and $2 million a year, according to estimates.

Pope's proposal would double the exemption for veterans with a "service-connected disability rating of 100 percent," based on evaluations by Veterans Affairs officials, or for their surviving spouses.

Voters in each parish would get to decide whether they want to allow or refuse the higher tax breaks. The measure would prohibit government agencies from raising property taxes on other homeowners to offset the higher exemption for disabled veterans.

A BGR report last year found that raising the exemption for all homeowners to $160,000, as was proposed at the time, would mean that 67 percent of homeowners in four local parishes would be exempt from almost all property taxes. The loss of revenue would force local governments to cut back on services or raise millage rates on other taxpayers by anywhere from 4 percent to 41 percent, the group said.